Conventional wisdom: Holiday parties and perks are nice, but optional. Keep it within reason and don't break the bank.
On the contrary: Go big! Your employees deserve it.
When I was in college, I sold shoes. My manager barely made more money than I did, but every year he would throw these lavish, over-the-top Thanksgiving dinners for past and present employees. He reminded me of Mr. Fezziwig from A Christmas Carol--he was generous and looked out for us, but he acted like it was nothing. I knew that was the kind of boss I wanted to be.
A regional manager at that same job was just mean and petty--he would destroy old product rather than give it to charity. It may have been company policy, but to me it revealed something more about him: a lack of empathy and respect. The impressions that bosses leave will stick with you, both the good and the bad. That job was decades ago, but the influence of those two men remains.
It's not about the money (well, not completely)
Here's what it comes down to: What kind of boss do you want to be? The regional manager was toeing the company line and probably saving money. He definitely wasn't the type to throw us a big dinner--or a dinner of any size, for that matter. On paper, he might be seen as more successful. Money was definitely his focus, after all, and I'm sure he made more of it, both for himself and for the company.
But I'd argue that, even though my manager was barely scraping by--his lunch every day was a slice of American cheese on two pieces of white bread, and he loved it--he was the more successful boss. Yes, he was gruff and a tad eccentric, but we definitely felt like he appreciated us, and we worked harder for him because of it.
That dinner came out of his own pocket, and I know it wasn't cheap, but it meant a lot to all of us. Sometimes you have to take a hit financially for the good of the company. It's the holidays--be generous, and be thankful for your employees.
Go as big as you can
I've tried to emulate the generosity of that manager now that I have a business of my own. Here at Big Ass Fans, we don't just do a holiday party--we give away thousands of dollars' worth of prizes, too. We're doing a bit better than American-cheese-on-white-bread, so we try and give bigger holiday perks.
It's vital to treat your employees equally well, and let everyone know how much you value them. The holidays are a great time to focus on that--though you should be doing it year round. Whatever you can do for your employees, do it and screw the cost (within reason).
There's more to it than money--it's about fun, it's about employees bonding, it's about appreciation. That's how the holidays should be at work. Make your employees think of you as a Fezziwig, not a Scrooge, and someday they'll treat their own employees that way too.